I’ve often mused at the paradoxical fact that we buy insurance to reduce risk and then gamble to increase it. Which led me to wonder how one could harness the gambling instinct to try to make the lives of those who like going to casinos better rather than worse. I don’t have any very bright ideas alas, though obviously taxing the hell out of such people doesn’t help. (I’m not here arguing against taxing gambling, just observing that it can get in the way of my thought experiment. I’ve thought of trying to get punters to punt on risky but worthwhile stocks – bio-tech, oil exploration etc. And of course some punters do bet on these things – there’s a good tradition in Australia of backing a few ‘penny dreadful’ miners just to see if one can come by The Fortunes of Richard Mahoney.
Anyway, as ever, there do exist products which combine savings and winnings. I was rather incredulous when told of them, but they are quite prominent in some countries, and as one might imagine they are hard to introduce in other countries which have crafted gambling regulations without regard to them. They’re written about in this paper.
4. Making Savers Winners: An Overview of Prize-Linked Savings Products by Melissa Schettini Kearney, Peter Tufano, Jonathan Guryan, Erik Hurst – #16433 (LE PE)
For over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements. In lieu of paying traditional interest to all investors proportional to their balances, these Prize Linked Savings (PLS) accounts distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor’s chances of winning are proportional to one’s account balances. This paper describes these products, provides examples of their use, argues for their potential popularity in the United States –especially to low and moderate income non-savers–and discusses the laws and regulations in the United States that largely prohibit their issuance.
I first came across this notion a couple of years back via a harvard business school working knowledge news article http://hbswk.hbs.edu/item/5866.html
That article points to research showing those interested in using prize-linked savings accounts are more likely to:
* Not have a regular savings plan
* Have less than $2,000 in savings/investments;
* Spend more than $150 month on lottery tickets
* Be optimistic about their future income prospects.
I cannot see state governments (the worst gambling addicts of all) doing anything but try to prevent such savings accounts, but I certainly reckon it is worth raising the notion with xenophon.
If you’re talking about problem gambling, then it’s worthwhile thinking about the whole gamut of reasons people gamble — many are not to do with winning money at all (e.g., gambling for social reasons or gambling simply because it is something to do). Given this, policies that would reduce problem gambling that you might get away with even with a government that really wants people to gamble as much as possible could try and target some of these aspects. For example, at least for old people and pokies, I imagine that simply helping them find places that are safe and where they can go muck around together (which seems sadly lacking in Australia compared to many other countries where old people just take over parks to play chess, cards etc.) would be a good start.
Behaviourist psychologist BF Skinner once suggested replacing taxes with lotteries. All that was needed was for schools to condition children by offering them favourable odds when young and gradually adjusting them until they found “the standard lottery with its meager odds irresistible” (the suggestion was probably satirical).
And then there were the Starr-Bowkett societies — a kind of terminating building society where subscribers had to have their name drawn in a ballot to get a loan or ‘appropriation’ (every subscriber was offered an appropriation eventually).